Tech rebounds into US CPI, neocloud earnings

00:00:00: Technology stocks rebounded on Monday, although NVIDIA missed the party as communities surrounding Jensen Huang unsettled investors and beyond the buzzy headlines.

00:00:09: And Huang risked that is all over the place right now while AI trade faces challenges and real ones enormous spending rising debt and uncertain returns on these investments.

00:00:20: so today after the bell Colby's earnings will test whether spectacular revenue growth can justify the financing burden with investors around the world watching capacity delivery, funding needs and cash flow.

00:00:35: Meanwhile US inflation data could reshape expectations for a December rate hike from the Fed.

00:00:40: And all that will shape their market mood and the market pricing, so welcome to Swissco's daily Market Talk is tenth of November.

00:00:49: I'm Ipekos Kardashian.

00:00:51: In todays episode we'll talk about chips and yields micro-and macro but before we do as always please keep in mind that opinions are my own.

00:01:01: this isn't financial advice.

00:01:09: So

00:01:11: the week started with a sharp rebound across most technology companies, except MVDLVC where losses were nearing six percent at some point following reports of CEO Jensen Huang's romantic affair.

00:01:25: woman who is suspected of being a spy for Beijing from the US authorities.

00:01:30: I don't want to spend full episode on this obviously, but one reason Avidia fell so much yesterday on news that it has positioned itself as mascot As the face of AI trade since two thousand twenty three The company's at the epicenter of the AI boom with most powerful and premium product range.

00:01:50: Financial deals with other companies investment support too companies and broader commitments involving many, many companies in technology around the world to keep orders for its ships and tracks coming.

00:02:04: And CEO Hong has been a central figure to NVIDIA besides having far-reaching vision of what AI will look like political and geopolitical situations, And somehow helped shape some decisions regarding the White House's China policy even within the broader technology world as taking place among others.

00:02:33: So their risk is that if Jensen Huang has to leave who will replace a man in that black leather jacket?

00:02:40: More importantly what would be the broader implications for NVIDIA earnings for its sales?

00:02:48: Huang's departure remains hypothetical.

00:02:51: Experts say that the probabilities are just a coin flip, while NVIDIA's board has expressed confidence in his leadership because well there is no one on line to replace him.

00:03:00: So what does it all mean for NVIDia's stock price?

00:03:04: Now I don't have a model obviously to price the Jensen risk or quantify precisely how much his potential departure would affect the company's sales and earnings graph.

00:03:15: But we could argue that yesterday's sell-off in the market, yesterdays' sell off on NVIDIA was perhaps an overreaction And rebound as we saw at comparison may have been exaggerated to.

00:03:27: it Was all part of a growing volatility around AI stress mind you.

00:03:31: So if four percent rebound for share is bad As with four percent fall because there are high especially in the actual environment.

00:03:41: So, the Huang distraction doesn't change the fact that the broader AI trade faces more tangible issues with material implications for company valuations.

00:03:49: those are all too much spending on AI infrastructure which is increasingly done on increased leverage, delayed returns on these investment and circular deals.

00:03:59: To those we can now add potential political risks under the incoming Democratic-led Congress in the

00:04:05: U.S.,

00:04:06: also fading enthusiasm for the buzziest AR trade of past three years.

00:04:11: The billion dollar question today is how hard it will be to revive appetite in markets following a spectacular pullback sustainably.

00:04:19: Now today, Anthropik and its valuation is coming back to the headlines.

00:04:23: After the latest reports suggested that IPO could now be valued at US dollars no longer near US dollars previously.

00:04:34: And after the bell call with you!

00:04:36: There you go, another NVIDIA backed company will report its results.

00:04:40: Analysts expect a revenue of around three point fifty four billion US dollars.

00:04:44: that's roughly one hundred and sixty percent higher than the year earlier but it comes with a loss too!

00:04:51: That mean spectacular growth?

00:04:52: at a substantial cost here as well.

00:04:54: And that substantial costs is no longer something investors are willing to shoulder, or not without asking detailed questions because remember Call of Use shares and its bond prices fell sharply last month aimed growing concerns about the company's debt while co-founder Brandon McBee spoke off tapping insurance unlimited pools of capital for the expansion if they had investment rates.

00:05:22: Well, unlimited financing that didn't sound well for investors.

00:05:25: No sir said investors showing their patience and willingness to fund the graph at any price has limits.

00:05:31: So today, investors will watch whether strong demand is translating into revenue at call view as new capacity comes online?

00:05:41: Whether construction remains on schedule and how much additional financing the company needs to deliver.

00:05:49: that huge growth in size of order book matters but so does cost of turning those orders into operating capacity.

00:06:00: That's the ultimate goal for the broader AI ecosystem.

00:06:04: I can tell you that it will take more than just reassuring guidance from a few neocloud companies or even hyperscalars to revive appetite because AI infrastructure companies cannot grow their businesses without investing massively in AI infrastructure, the latter requires substantial financing.

00:06:22: That financing comes from sub-issues but also through debt and customer prepayments.

00:06:27: sometimes meanwhile delays rising bargain costs, or greater quotient from investors around new customer commitments.

00:06:36: could reinforce concerns that tomorrow's expansion in AI services will be slower, or it would be less profitable than expected by analysts which were then way on valuations.

00:06:48: Now having exposure to cloud companies is interesting.

00:06:51: the business here to stay obviously as AI expansion is happening but we may see constellation in this sector favoring players with easier access to financing and therefore a greater ability be the big players like Amazon, Google Cloud or Microsoft Azure.

00:07:10: Because when you look at numbers, the financing gap is striking.

00:07:13: I mean selected dollar bonds maturing in two thousand thirty.

00:07:16: one recently yielded around five to five point three percent for Microsoft Alphabet and Amazon compared with round seven per cent for SpaceX as also in the cloud business.

00:07:27: add more than sixteen percent full core will.

00:07:29: These are secondary market yields rather than interest rates paid on all their existing debt, but they do illustrate how different the investors price their credit risk and how that becomes important when investors worry about borrowing costs.

00:07:44: Speaking of these borrowing cost while investors will also be closely monitoring today's CPI inflation update from the United States.

00:07:52: here The good news is prices for US goods and services may have rising at a slow pays in October compared with the past two months' readings.

00:08:03: That's because energy prices mostly ease in the month of October.

00:08:07: The bad news is that, US diesel prices didn't reflect that pullback and both headline and core CPI metrics are expected to have risen on an annual basis further away from the first two percent target.

00:08:21: In the meantime, the war in Iran isn't over even though we see prices oil coming down and oil markets are not ready to go back to normal times just yet despite the recent pullback that we saw in prices.

00:08:32: The rest of the upside prevailed, therefore a software cpi reading from the US today could ease December hike expectations from the Fed and offer some relief to borrowing costs and valuations.

00:08:43: but whether we will see the december rate hike bets from the fed vanish enough to reverse the stronger yields.

00:08:54: activity on Fed funds features currently assesses around an eighty-four percent chance for a twenty five basis point hype from the Federal Reserve in December.

00:09:03: What will be interesting is how these probabilities, expectations change for price action?

00:09:10: But beyond inflation, what is also interesting is that the US dollar's appreciation this year was broadly supported by strong growth expectations for the U.S economy That were mostly thanks to u.s government spending and of course Also the AR expansion rather than inflation expectations in hawkish Fed.

00:09:27: mind you The us dollar also managed outperforming times off market stress strikingly.

00:09:32: the longer run inflation Expectations in the west remain anchored near the federal reserves two percent policy target and that despite high energy prices, suggesting robust growth expectations mostly explain the US dollar's appreciation throughout this year.

00:09:50: Therefore todays inflation data will be an important piece in this puzzle but it won't determine a loan where the US Dollar may be headed next!

00:09:59: Today both U.S Inflation & U. S Growth Expectations are easing and they are mostly easing due to potential AI slowdown, and potential slow down in the US government spending under a new democratic-led congress from January on.

00:10:17: And the latter could take some shine off the greenback despite potentially hawkish fit expectations!

00:10:22: So The U.S.

00:10:23: dollar could eventually amass some safe haven inflows if for example we see another stress, risk assets, yet any US dollar strength that would be driven by a technology sell-off for example could prove short lived as weaker AI led growth expectations will eventually come home to roots.

00:10:45: So I think the U.S.

00:10:46: dollar's strength is under pressure due.

00:10:52: So this is all for today.

00:10:55: I'm Ipek Oskar Deshkaya and thank you for joining me, And Thank You For All Your Beautiful And Supportive Comments!

00:11:02: market comments.

00:11:24: and please don't forget to hit the like button on these videos.

00:11:27: so let us know that you enjoy them.

00:11:30: So I will meet again tomorrow, until then good day

00:11:49: trading!